Unusual Options Activity Review: KBH, MS, ABX, WFR, CLnE, BBY, CHK, SVNT, .SPX, SPY, QQQ
Unusual Activity Review For Thursday, May 17, 2012
Thursday's Bullish Trading
KB Homes (KBH) finished down 62 cents to $7.07 and has suffered a large decline since setting 52-week highs of more than $13 per share in mid-March. Shares have suffered a two-month 45.9 percent plunge since that time. Options on the homebuilder were active as the stock fell to multi-month lows Thursday. 29,000 puts and 3,450 calls traded on the stock. The largest trades in KBH were part of a spread, in which the investor bought 12,800 May 8 puts on KBH for 61 cents and sold 12,800 June 7 puts at 58 cents. This May 8 ñ Jun 7 diagonal put spread probably rolls a position out one month and down one strike. On April 20, an investor had sold to open a position in 15,000 May 8 puts on KB Homes at 53 cents per contract. The contract is now in-the-money after the stock's slide and the investor is possibly buying the position to close in order to avoid assignment heading into the expiration. They might be also selling a new position in the June 7 puts and seem to be expressing confidence that the stock will hold above that level over the next four weeks. If not and the position is left open, they'd face assignment on the June 7 puts at the June expiration and be asked to buy the stock for $7.
Bullish trading was also seen in Morgan Stanley (MS), Barrick Gold (ABX), and MEMC (WFR).
Thursday's Bearish Trading
Clean Energy Fuels (CLNE), a Seal Beach, CA provider of natural gas as an alternative fuel for vehicles, lost 90 cents to $13.11 on high volume of 3.3 million shares and has now tumbled 31.9 percent so far in May. The slide in shares seems to have stirred up some concerns about additional losses, as players were actively trading downside puts on CLNE Thursday. June 11 puts, which are 16.1 percent out-of-the-money and expiring in 29 days, were the most actives. 8,100 traded. May 13, Sep 11 and Jun 12 puts on CLNE saw interest as well and levels of implied volatility in the options on the stock spiked 72.5 percent to 114.5.
Bearish trading was also seen in Best Buy (BBY), Chesapeake (CHK), and Savient Pharmaceuticals (SVNT).
Options volume surged in the S&P 500 Index (.SPX) pit due to the expiration and the increasing levels of market volatility today. Since SPX May index contracts stop trading tomorrow before the settlement value is computed Friday morning, players were actively trading the contracts, as it was the last day to trade SPX May puts and calls before they expire. However, not all of the flow was expiration-related, as the market slide has stirred up a lot of hedging activity in indexes and exchange-traded funds that track the broader market. 1.3 million puts and 510,000 calls traded on the S&P 500 today, which is the highest level of put activity for the product since the market sell-off of August 2011.
Analyzing the ETF Market
Huge put volume was seen in the exchange-traded funds as well. 7.7 million puts and 3.8 million calls traded across the S&P 500 Trust (SPY), PowerShares QQQ (QQQ) and other ETFs, which is the highest put volume since August of last year. SPY lost $1.97 to $130.86 after the S&P 500 Index made a late-day run at the 1,300 level and finished near session lows. May 130, 131 and 132 puts were the most active ETF contracts. Short-term players are opening and closing positions in May options on SPY in reaction to the volatility ahead of the expiration. Indeed, Friday is likely to see some interesting market action. Not only is it expiration-Friday, but Facebook is due to make its debut in the largest Initial Public Offering on record.
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sell asecurity or to provide investment advice. The content provided has beenobtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and other risks apply.
View Joseph Cusick's post archive >